Business Personal Property
County Assessor Personal Property Department
Personal property is defined by exception: property that is not real property is personal property. In short Business Personal Property can be defined as assets used to operate a business, farm or ranch. The main characteristic of personal property is its mobility without damage to itself or to the real estate in which it is located with some exception (see the following paragraph). Arizona taxable personal property within the Assessors' office falls into two divisions, Business/Agricultural and Manufactured Housing. Business/Agriculture examples are: industrial equipment, office furniture and fixtures, leased machinery or equipment and farm machinery.
Personal property falls into two broad categories: tangible (chattel) and intangible. Tangible personal property is actual physical personal property that can either be attached (chattel, real) or unattached (chattel, personal) to real property. Items that were movable and are now attached to the real estate and used in the conduct of business, such as restaurant tables and booths and bowling alleys are called trade fixtures and treated as personal property. Intangible personal property includes bonds, stocks, patents, insurance policies, and accounts receivable.
In Arizona, travel trailers, cars, and other vehicles are considered personal property, and thus owners pay a registration fee based on the value of the vehicle, rather than one based on the age or weight as in many other states. This fee is comprised of a registration fee and an "in lieu" tax which is collected by the Arizona Department of Transportation. Because the fee is based on the value of the vehicle, it is also deductible from income taxes, along with taxes paid on real and personal property.
Mobile homes may be classified as either personal property, or as a vehicle, or as realty, depending on a number of factors.
It is not always easy to distinguish between real and personal property. There are a number of criteria used to determine in which category a property may belong.
- Physical annexation of the property. Generally if it can be removed without damage to the property or to itself, it is considered personal property.
- Constructive annexation of the property. If an item is so essential to a property that it cannot perform the function for which it was designed without that item, it may be considered to be constructively annexed.
- The method in which ownership is transferred. This is considered along with, not separately from, the two criteria above. Ownership of real property is usually transferred in a formal process, and ownership is not complete until the financial obligation has been satisfied. For instance a mortgagor does not truly own a property until the entire mortgage has been paid. Ownership of personal property is transferred much more casually, using receipts and bills of sale.
- The intent of the owner. This is also a factor considered with, not separately from, the first two tests. If the appearance of the item indicates that it is intended to remain annexed indefinitely, the item may be real property for tax purposes. Intent may also be determined by factors other than simple visual appearance, such as in an agreement between parties, or in a contract between lessor and lessee. Historic use might be an indication of intent. If doubt exists, a series of test should be performed.
The following information is from the Arizona Department of Revenue Personal Property Manual, and gives some examples of real and personal property as defined in Arizona:
- Air Conditioning (built-in)
- Docks and Dock Levelers
- Electrical (used for structure)
- Nut Trees
- Air Conditioning (window unit)
- Bowling Lanes
- Electrical (used for machinery)
- Fuel Tank (buried) (see note)
- Vault Door
Note: Some items of property may be either real or personal, depending on how they are annexed, how they are used, or how they interact with related property.
Personal Property Appraisal
Personal property appraisal in Arizona covers many different property types; mobile homes, farm and ranch equipment, industrial, commercial and office equipment, artwork, and cable television systems are just a few of the property types subject to property taxation. The definition of personal property is "all property other than real property". Personal property can be divided into two types: tangible and intangible property. Intangible property consists of property which represents value, but has no inherent value of its own. Stocks, bonds, or goodwill are examples of intangible property. Generally, intangibles are not taxed in Arizona. Personal property is generally valued using the cost approach, as this is the most reliable method for the majority of types. RCN for personal property includes the purchase price of the item, plus installation labor, shipping costs, and any taxes applicable to the item. Depreciation is then applied to the amount to arrive at RCNLD.
Personal property appraisers that establish market value use many different sources. Retail and wholesale price books, vehicle "blue books", industry catalogs and owner records of purchases are all used. The Department of Revenue Personal Property Manual contains tables, which include factors for both appreciation and depreciation, which can then be used to arrive at RCNLD. Appreciation is included in order to accommodate for the effects of inflation on prices, although the tables are referred to as depreciation tables.
Merchandise held for resale (inventory) is exempt from taxation, and thus valuation. In Arizona, the personal property reporting system is self-reporting. The Assessors ends a notice demanding a listing of personal property to commercial enterprises within the county, and the business must return the form within 45 days with a listing of the property (the form is the 82520 for business, and the 82520A for agricultural property.) Audits may be used to check accuracy and completeness of the listings. Household goods not used for commercial purposes are exempt from taxation in Arizona.
All forms are subject to audit and forms returned late are subject to a penalty. Please refer to Arizona Revised Statues 42-15053 Duty to report personal property: confidentiality and 42-15055 Failing to file report: penalty. Any person who knowingly fails or refuses to furnish the assessor with such information or material as demanded under section ARS 42-15052 is guilty of a class 2 misdemeanor.
IPR: An Improvement on Possessory Rights situation takes place when the owner of the improvement is not the owner of the real property and usually when the improvement is located on un-patented land, a mining claim or state land. According to ARS 42-19003 and 42-19116 the improvement must be entered on the personal property tax roll. Improvements may consist of, buildings, wells, appurtenances, stock tanks, and any other fixed property.